Whether you’ve belonged to a stokvel for many years or are only just starting out and considering what kind of stokvel to contribute to, a property stokvel is possibly one of the best options available to you.
There’s been a dramatic rise in the number of property stokvel clubs in South Africa in recent years, mainly due to the fact that as property prices continue to rise, many individuals feel that without the power of group saving that they would not be able to afford a home of their own.
1. This is one of the first benefits: affordability.
Perhaps you are already a home owner but you are still keen to build wealth. There are few options that compare to property in terms of keeping pace with inflation versus the risk involved. What this means is, that you could put money into a savings plan or a policy or buy shares or unit trusts through a financial institution but the increasing costs of living and the risk of under-performance from these other means of wealth-building, might leave you disappointed.
2. This is another benefit of putting money into a property stokvel.
lower risk of losing your money (compared to some of the other financial products mentioned) and a better financial return because of the property growing in value over time, not to mention gains from rental income.
While you still have to factor in costs associated to maintaining a property, items such as municipal rates, insurance, etc., when you belong to a stokvel, the benefit to you as an individual means these costs are shared with the other stokvel members, making it much less of a burden.
Let’s unpack what this might look like in practical terms:
Namanje Stokvel Club has 10 members who together purchase a property for R500 000. Additional costs include transfer, initiation and bond fees of R36 500. They have no deposit to put down, so the total amount raised will be R536 500 (a 100% bond with costs). Each of their members would not qualify for a bond of R536 000 for a variety of reasons (poor individual credit ratings, affordability issues, etc.), however together, the club is able to get the finance approved for a bond over 20 years at 10% interest. The minimum repayment is therefore R5177.34 per month.
Bear in mind that at this rate, the club would pay total interest of R706 061.87 taking the total amount paid for the property to a massive R1 242 561.87!
Instead of paying R520 per month each, member instead agrees to pay R2000 per month. From each R2000 contribution, R50pm is allocated to club expenses, R50pm allocated to a separate savings account for maintenance and repairs, R100pm allocated towards municipal rates and taxes as well as insurance and the remaining R1800pm per member towards paying off the property.
They are therefore going to pay the property off faster, by paying R18000 per month (which is R12800 per month extra) from members’ contributions.
In addition to this, they will be renting out the property for R2000pm. This also goes towards the bond repayment, making the total monthly repayments on the bond R20 000. This property will be paid off in full within approximately 2 years at this rate. They will then be able to use it as collateral to buy the next property (or properties) and continue renting it out at a rental price that is in line with inflation.
In this manner, Namanje Stokvel Club could go on to purchase 10 properties in 20 years and each member could own their very own property outright, which they could either live in or continue to use for rental income OR the stokvel could continue to purchase additional properties to grow their portfolio and split the profits from the rental income, which in 20 years over 10 properties would be reasonably substantial.
This is not something that an individual would have had access to over 20 years of spending only R2000pm by themselves.
3. Another benefit to the individual who is a dedicated stokvel contributor.
Stokvels provide individuals with greater access to gaining their financial freedom through collective wealth-building.
There is no easier way to manage the process and maintain trust and transparency during the process, as well as paying the lowest club fees in South Africa, than on the StokFella platform. WhatsApp us on +27(0)78 185 3074 for more details.
This is one of the reasons why we are 2018 MTN Award-winning stokvel money app dedicated to helping you get your #MoneyLit